An Asia Pacific Growth Story

12/11/2014 10:00 am EST

Focus: FUNDS

Todd Rosenbluth

Senior Director of ETF & Mutual Fund Research, CFRA Research

Japan is seeking to recover from its latest recession, causing investors to search for investment alternatives, observes Todd Rosenbluth, S&P Capital IQ Director of Mutual Fund Research, in S&P Marketscope.

Yet, Pacific ex-Japan equity markets tend to be more volatile, as these largely emerging markets are prone to favorable and unfavorable geopolitical developments and unexpected events, such as natural disasters.

Steve Cao, lead portfolio manager of S&P Capital IQ four-star Invesco Asia Pacific Growth (ASIAX), views the volatility in Asia as an opportunity to buy high-quality companies with long-term earnings power at an appealing valuation.

Cao and his two co-managers Mark Jason and Brent Bates, employ a low turnover, bottom-up process based on finding companies they think have sustainable earnings growth and efficient capital allocations.

Ideal companies have global franchises, earnings growth catalysts, and a proven management team that have established strong balance sheets. Fund management has a list of ideal candidates that is regularly monitored until valuation opportunities arise.

ASIAX has an S&P Capital IQ four-star ranking, based on a combination of its strong risk-adjusted track record, its underlying holdings, and its cost factors. In each of the last three calendar years, the fund outperformed its peer group and is up 9.6% for the year to date, ahead of its 8.4% average.

During the last 12 months, only three new stocks were added to the approximately 50-stock portfolio, while stakes increased in others.

One such new addition to the portfolio was Australian based Amcor ltd (AMC), a global packaging solutions company with subsidiaries covering Asia, Europe, and the United States. Another new addition was SM Prime Holdings (SMPH).

Other recent holdings with above-average S&P Capital IQ Quality Rankings include Minth Group (425) and Industrial & Commercial Bank of China (1398), with A+ and A- rankings, respectively.

Further helping the fund's ranking is a turnover rate of just 18%, well below its peer average's 55%.

In addition, the expense ratio of 1.5% is modestly below the 1.6% for peers. For investors seeking exposure to high-quality Asian equities, we think ASIAX is a strong candidate for their portfolio.

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